Gottex Asia Fund Cuts Number of Investments to Boost Returns

Sept. 15 (Bloomberg) -- Gottex Fund Management Holdings
Ltd., which farms out $8.9 billion to hedge funds, halved the
number of investments in its Asia fund since late last year to
improve returns, Co-Founder Max Gottschalk said.

Its $60 million Asia fund will have 22 holdings by October,
from 45 late last year, Gottschalk said in an interview in Hong
Kong yesterday. The Lausanne, Switzerland-based company as a
whole invests $400 million in 38 Asia-focused hedge funds, with
the number likely to drop to 30, he said.

Gottex is shifting to more concentrated investments in
better-performing, smaller funds as investors demand higher
returns. Funds of funds are redefining their roles as large
pension funds and university endowments increasingly bypass them
to directly invest in hedge funds after some were caught in the
biggest Ponzi scheme in history run by Bernard Madoff.

“When investors are looking to invest in Asia, they’re
looking for punchier returns,” said Gottschalk, 39, who is also
the company’s Asia head. “Funds of funds are earning part of
their keeps by providing access to some of the younger, emerging
managers or smaller managers.”

Gottex’s Asia fund has retained 12 managers it invested in
late last year and added others, said Gottschalk. Asia funds of
big global houses were among those dropped after posting lower
returns, he said.

Its Asia fund returned 1.5 percent this year though August,
compared with the estimated 2.4 percent loss in the Eurekahedge
Asia-Pacific Fund of Funds Index.

Newer, Lesser-Known

Gottex is joining companies such as Pictet & Cie, which are
shifting to newer, lesser-known managers to boost returns.
Nicolas Campiche, Geneva-based chief executive officer of Pictet
Alternative Investments, said in November it would boost
investments in newer managers to 60 percent from about half.

“There’s a perception that the Asia market, due to its
increased risks, should generate higher performance,”
Gottschalk said. “Also there’s no doubt that Asia, and the
Chinese economy in particular, are drivers of global growth.”

The largest hedge fund of Paulson & Co., which oversees $35
billion, was among big global funds that underperformed peers
this year. Paulson’s Advantage Plus Fund lost 34 percent this
year through August, while the HFRI Fund-Weighted Composite
Index dropped 1.2 percent.

The dollar amount of Gottex’s regional investments through
its Asia and global funds has remained stable through 2011,
Gottschalk said. Its Asia fund may cut the number of managers it
has investments in to 20 by the end of the year, he added.

“If you over-diversify your portfolio, obviously you
reduce risk in the portfolio, but you also give up a lot of
performance for that,” Gottschalk said.

Gottex may change 20 percent to 25 percent of the Asia
hedge funds it invests every year, up from as much as 15 percent,
Gottschalk said. Gottex likes global macro managers who seek to
profit from economic trends by trading equities, bonds,
currencies, rates and commodities. It also favors some managers
that bet on rising and falling China stocks.

Gottex moved Gottschalk to Hong Kong earlier this year to
help expand its business in the region.